Axis Bank Limited analyst Q&A

Thank you very much. We will now begin the question and answer session. The first question is from the line of Mahrukh Adajania from Nuvama Wealth. Please go ahead.

Good evening. My first question is on OPEX. Puneet, you mentioned that there is some non-recurring item in other OPEX explaining the steep QOQ increase in that item. So, could you quantify it? That's my first question and I have another one on deposit growth?

Mahrukh, thank you for your question. We are not putting the absolute number out on what the quantum of the one timer is on a QOQ basis. I just want to clarify for you that we've done two things on operating expenses; (i) we h ave become more prudent on the way we actuarially value our cards rewards points, so there's a one -time charge for an actuarial catch up that is sitting in the OPEX for the current quarter, which should be non -recurring and (ii) second is some bit of rewar ds rationalization that took place in the quarter. We've upfronted the cost of that rewards rationalization. That's the two broad heads that have largely contributed to the QOQ increase. But there will be other BAU items for a growing business that we would incur.

Okay. Because if you exclude the integration expenses that have grown, I mean that have kind of declined, right, there's a Rs. 100 crore decline in the Citi related integration expenses. So, if you exclude that, then the OPEX has actually grown over 7% QOQ, so do we expect that high growth because I mean if some other expenses are going to compensate for one-off this quarter, then I mean just some broad guidance even on near-term OPEX?

So, Mahrukh, I think I have co nsistently maintained that integration expenses will be Rs. 2,000 crores incurred over 18 months. I have also indicated that 75% of that expense is time -proportioned and 25% of that expense will be incurred episodically to accelerate the closure of the transaction. So, if you take what I had indicated previously, the cost for the quarter completely represents the time accrual that I would have spoken of. In the last quarter, we accelerated some of the expenses, which I had anyway always indicated would be episodic. So, this Rs. 100 crore decline is just the function of when we incur that Rs. 400 crores of expenses, which is the 75:25 proportionality that I spoke of. To your second point on whether we would provide an indication on what short-term OPEX would look like, I think we're sticking to the fact that the opportunity that we have , given where NIMs and credit costs are , allow us to continue to invest in the franchise, our investments are going into our growth and technology related business. If you look at slide 14 of the investor presentation, 51% of the expense growth is under those two he ads. The BAU OPEX growth is also called out there. That is a good proxy of what you should see on a BAU basis for growth to come through. There is clearly a one -time operating expense for the two-line items I have called out, which ideally should not recur as we move forward.

Okay. And my other question is on deposit growth. So, you've done a very good job in improving the quality of deposits. However, the deposit growth is lagging loan growth. Obviously, you had excess LCR, which you could have used and you have, but do you have any more excess LCR or now will deposit growth be in line with loan growth? And then does that mean some sort of a pause in the structural improvement of deposit quality that has already occurred over the last 2 years?

We mentioned tha t as far as LCR outflow rates are concerned, we are now perhaps the best in industry. We can't keep improving on this. Actually, I do believe that there is some scope for us to play around with that number depending on how things play out and see whether w e can continue to use that to fund our loan growth. So, from our perspective, we have various levers in hand, which is going after term deposits and support our balance sheet. Look at our outflow rates and see what we can do and how much we lend, continue to work on some of the other levers which we have on the deposit side and we'll be using all those levers depending on how the market plays out and where the positives are. So, I don't want to get boxed into how it will play out in the next couple of quart ers, just please be assured that the management team is on top of what these variables are, how they can be used and that's exactly what we demonstrated in the quarter that has just gone by.

Thank you. Next question is from the line of Chintan J oshi from Autonomous. Please go ahead.

So, I want to continue the conversation on deposit in terms of the levers you have, how high are you willing to let the loan deposit ratio go up? I appreciate it will fluctuate quarter from quarter, but what is the kind of ceiling that we can think of in terms of loan deposit ratio? And then I have one more on provisions?

The metrics that we work of is LCR because see ultimately it's not just the quantity of deposits that's important, but in this new LCR regime, not new anymore, but in the LCR regime, the quality of deposits has become as if not more important and so therefore the metrics that we work, the point that you're making is off is LCR and typically you will see if you see many quart ers, our LCR range has been around 115 to 120. That's the range that we like to keep it.

Let me just add to what Rajiv said, we pulled across it rightly. Please understand that if you look at our term deposit growth across all our segments, it is about 22%. We are doing as well as anyone else out there on the TD side. It's not that the franchise is not firing from that perspective. We are signing up a number of partnerships. We have the maximum number of partnerships where I would say on the retail side, which will ultimately feed into this franchise. One of the reasons why we did ‘open’ was to also scale our liability franchise digitally. So, if you look at the number of branches which we have added, it is also one of the highest in the l ast couple of quarters. So, our investments continue on one side. Secondly, the franchise has shown the capacity and the capability to fire. And as Rajiv rightly pointed out, we focus more on LCR and driving the business through LCR.

Okay, thank you. And then, if I look at your total provision coverage ratio at 150%, it compares quite favorably with peers. I'm wondering if there is potential of release into capital into equity here at some point in the future or do you hold these provisions against kind of identified issues?

So, our intention at this point in time, which we have been quite consistent about is that we have no intention of releasing our COVID provisions. We can't keep calling it COVID provisions forever. So, by March 2024, we will take a call on where do we put them across, but our intention is not to write back any of it at this point in time. We will keep it for the future rainy day.

Just to supplement what Amitabh said, I just want to make it a bundantly clear that these are prudent. They do not reflect any risk on our book as we see it today.

Thank you. Next question is from the line of Param from Nomura. Please go ahead.

Thanks for the opportunity. My first questio n is on the retail card fees. So, if I look at the retail card fees which you've disclosed, it's up 39% YOY. The spends, the credit card spends you're showing is up 72%. So, I just wanted to understand what's the reason for the disconnect here? That's my f irst question?

Yes. Thanks for the question, Param. So, the fees number which you see represents an overall holistic view on the nature of fees and it wouldn't be exactly linearly mathematically correlated with the spends. Also do keep in mind that the year -on-year growth in spends also represents the acquired portfolio of Citi, which had a different fee structure from what the Axis book has. In absolute terms, though I must tell you that 39% is quite a good number to see fee growth. That's a focus area for us because we want to diversify the earnings pool that we've seen in the cards business as well.

Yes, I got that. So, 70% includes the Citi fee, but I just wanted to understand because the credit card fee I understand wo uld be the bigger driver within the retail card fee, right? So, I just wanted to understand both these numbers are like for like comparable. Why is there a gap because one would have expected those retail cards fee to be higher?

No. The retail card fee comprises non -spend related items as well. There are items related to annual fee, joining fee, payment charges, all kinds of other fees and the fee structures of the Citi portfolio and the Axis portfolio were quite different. The spend number is the 72% doesn't include the spend coming from the Citi cards portfolio, which is not in the baseline of the previous year. That's why the spend number is showing a higher percentage growth rate than the fee number. Some part of the fee does come from th e spend and that is dependent on the interchange rates as you well know, but not all of it. And that is why we are seeing that as the spend goes up, the spend will continue to grow faster but elements of fee which are not related to spend will obviously not grow at the same pace.

Got that. And my second question is on the margins. So, how far along are we on the term deposit repricing? And secondly, this quarter, we've actually shown an expansion in the loan yields, which I think some of our peer Banks have not shown. So, I just wa nted to understand parts directionally, you know what segments are driving this expansion in yields and how we see that progressing going ahead? Yes, that's it from me. Thanks.

Give us some credit for doing a good job. Well, we have worke d very hard to get to this point. So, yes, I mean it partly reflects the fact that our overall loan mix has changed. Some asset categories have grown faster than some of the others, but you know we have always talked about 4 or 5 things which we are driving within the Bank. We're driving cost of funds, we are driving the RIDF numbers, we are driving how we can change the product mix, we are driving the overall yields. So, this effort is coming because of lot of factors which are being driven at the same time and we are maintaining it quite consistently. We also are running a project to see as to how we can price the right yield for an individual customer. I mean ultimately there is a price point, there is a tenure and there is an amount which is perfect for the customer and makes sense for the Bank. You know, all of us use pricing g rids. We are running a project internally to actually create a pricing for individual customers, so there are a lot of things which are happening below the surface which have allowed us to get here and it has not been an easy journey. It will not remain an eas y journey because some of the repricing, you know the rates have hardened. So, the repricing is still left, but we have been stating consistently that we will continue to work towards ensuring that we remain in the same zone. That's the kind of the phrase we've been using forever. And I think this quarter’s numbers reflect the fact that we've been able to keep the same zone at the higher end of the zone.

Yes. Thank you so much, Amitabh. Just one more bit on the term deposit repricing as well, if you could speak a little bit about that. Yes, that's it from me. Thanks a lot and congratulations on the quarter.

Thanks for the question on term deposits. Our marginal cost of funding has stabilized. So, at the margin, we're not seeing an increase in deposit expenses. The base book will continue to reprice. The pace of repricing of the base book, i.e. the change in cost of funds, should slow down as we get into the subsequent quarters in the year, but we do see a few more quarters fo r base book to get fully repriced in this cycle.

Hi, Amitabh and team. Congratulations for the quarter. So, I have one question on personal loans. Can yo u talk a bit about, you know, there have been indications by the RBI that it is a little cautious about it. You yourself I think last quarter had mentioned that there was some pressure in the less than Rs 50,000 ticket size segments. So, if you can talk a little bit more about a) whether the RBI has asked Banks in general to be a little, go a little slow on this. And b) also if you can talk about how much of your personal loan portfolio is from top, let's say, Tier -1 versus Tier-2 and where does the stress lie really in the overall personal loan pool?

So, you're absolutely right. I think especially RBI Governor has been calling out the growth in personal loans for quite some time and obviously if the regulator is calling it out, we have to take full cognizance of what is being said. On the flip side, we obviously have our risk guard rails. We're monitoring it very closely and we are very clear in our minds that the growth in personal loans, if it comes, it has to come not at the cost of risk guard rails or lowering our risk, but it has to come because we are reaching out to more customer segments, our distribution reach has improved, our overall efficiency of the process has gone up and so we are able to get at the same risk quality, more cus tomers and so we are able to grow that portfolio. So, let me first get that principle out and we have mentioned that we are seeing stress build up in loans below Rs 50,000, our share of loans below Rs 50,000 is much smaller, I will ask Sumit and Puneet to expand. So, we are watching these parameters closely. We are not seeing any deterioration, but we are fully cognizant at the same time of what the regulator is saying. I'm not aware if the regulator has called some players specifically and asked them to curtail it or not. It is not in public domain, so I'm not aware of it. But let me ask Sumit and Puneet to kind of expand on some of the other facts.

Abhishek, Sumit here. So, Rs 50,000 and below is where we believe there is stress that portion fo r us is almost nil. We don't play in that segment and we have consciously chosen to be away from that segment. Historically, if you see large part of our personal loan sourcing is from ETB customer and as we grow, that number has maintained. The number las t quarter also was 83%. Contribution from ETB segment, this quarter also the number is 83%. In addition to that, now we have a few partnerships in place where again, those customers are known to the Bank, and we also have their transaction data with the partners. So, our score card is therefore much more richer for those set of customers. So, we are not seeing stress build up. We are in control of the situation. And as Amitabh said, we're not compromising risk or volume at all.

And Sumit, just to clarify, in your PPT it says that 100% of the PL is given to the salaried segment. Is this incremental or on book 100% is to salary, then nothing is given to self-employed in terms of PL only?

So, salaried personal loan is given only to salaried customers. So, the number you see again, salaried personal loan is to salaried people only. Separately, we have a business loan which is given to self -employed people that is classified under the Small Business Banking. That's a book of about Rs 12,000 odd crore, which is behaving even better than the personal loan.

So, that is a personal loan given to business owners. So, that's why it's classified there and not in your PL book?

Yes. So, that's an unsecured loan given for business p urpose to SME or professional, hence it is classified as business installment loan.

Got it. Thanks for that. And my second question is actually on your fee. So, if I knock off the card fee and the third -party fee, what remains is the asset and liability related fee. Now if I look at that fee, that has not grown much, I think that is declined about 3% QOQ, whereas there has been a reasonable amount of growth in your assets, especially the loans, personal loans and other loans. So, why has that gone down?

Abhishek, thanks for the question. I think I just request you to think about non cards and non-TPP fees with reference to disbursements and not to loan book because some of the fee is earned at disbursement. So, you will see the fee behave as disbursements behave. So, that's one element. The second element that I would want to flag off to you is as a franchise, we are at 1.53% fee to total assets which basis numbers I see is near best in class in the industry. I think inter -quarter fluctuations will happen in a business our size. But I would request you to consider the fact that at 1.3% fee to assets, we have a very healthy fee profile as we stand, 93% of our fee is granular, which makes it sticky and recurring. On an inter -quarter basis, it will be a number that will keep moving around, but I don't think you should read too much into it.

Actually, yes, I was looking at the disbursement number and your index disbursement has gone up from 118 to 146 in this quarter. So, that's w hy I thought that line item would have gone up more. Anyway, thanks for the clarification and all the best for the future work.

Thank you. Next question is from the line of Kunal Shah from Citigroup. Please go ahead.

So, the first qu estion is with respect to home loans. Last quarter also, you highlighted that work is in place and we should see the growth visible in the quarters. But still when we look at it, it's like a much lower pace, hardly like 2% sequential growth, 9% year-on-year. So, when do we actually see the traction and building up and the initiatives out there?

So, Kunal, Sumit here, a couple of statistics. Quarter -on-quarter, home loan disbursement is up 26%. If I look at our previous quarter number, our book was quarter-on-quarter minus 0.5%. This quarter it is plus 2%. So, we are seeing good momentum build up. These numbers from here on will continue to improve. We have taken couple of strategic initiatives which are going live. In addition to that, even the n ormal business is growing. That initiative would be additional to the regular BAU business.

Sure. And secondly, in terms of the overall employee addition during the quarter of almost like 4500, so in the opening remark, it was highlighted that most of them were towards the technology and included in this technology cost which we highlighted, or this is across this segment, that number is also getting higher?

Kunal, thanks for that question. What we did call out was that a large part of our OPEX growth, which is the comments we made is 51% of our OPEX growth is towards technology and growth-related businesses. On the headcount, the headcount is pan Bank. Please appreciate that we also added, as Amitabh indicated, 204 branches in the quarter. There would be headcount that would be deployed for that business in addition to all of the gr owth that we are delivering. So, the headcount growth will be principally across our business teams plus technology team. That's the key message that I would request you to please take away.

And one last question, anything with respect to attrition in Citi deposit because if we look at maybe in terms of this lower deposit growth vis -à-vis the other peers even in absolute term when we look at the traction that still seems to be like 15, 20 o dd thousand crores vis -à-vis like more than 50 odd thous and crores for the other players. So, obviously you sa id like you would not split between both after the merger, but qualitatively any sense if it's largely because of that?

No. So, Kunal, actually you're right. We can't split it. It's now a combined book. But qualitatively, let me reassure you that from the day it came over, the Citi deposit book has actually been growing and it's been growing a little faster than it was in the prior period. So, you can rest assured on that front that it is not leading to any sort of depletion. In fact, there are more accounts being opened and there are more balances in those accounts now.

Thank you. Next question is from the line of Saurabh from JP Morgan. Please go ahead.

Just two questions. So, one is to what level would be comfortable taking your unsecured book to, it's about 11% odd, but directionally what level could you take it to? And the second is in terms of the difference between your gross credit cost and net credit cost. So, a s we mature in the cycle, how would you think about the differential between the two? These are my two questions and congratulations on the good numbers. Thank you.

Saurabh, thank you for the question. If you look at slide 60 of our presentation, our gross credit cost is about 70 basis points, our net credit cost is for the quarter at 42 basis points, so there's roughly a 28-basis points gap. The same number for the previous quarter would have been a gap of 24 basis points. So, there will be inter-quarter fluctuations, but directionally the way we seeing this pan out is asset quality is holding up well. Gross credit cost is the number we should monitor. The j aw between gross credit cost and net credit cost will shrink simply because recoveries and upgrades will not be at the same pace that we have had previously. So, that's directionally how gross and net credit cost would move. My request again is please don't look at gross and net on a sequential quarter basis or on a quarter -on-quarter basis because wholesale recovery is episodic and can change that number. A good way to look at that number in our minds is on a full year basis. Directionally, recoveries and upgrades are likely to decline as we move forward. That's our view for ourselves. That's also our view on how industry will behave given how we see it.

And secondly, sir, on the unsecured, what percentage can you take it?

So, on the point about unsecured, the way that I would request you to think about it is that if you see slide 16, the RWA intensity of the portfolio is not changing. I mean, it's been around just moving around 66%-67% for the last 6 to 8 quarters. I think that should give you an indication of how we're thinking about risk. The intent here is not to increase the risk to be able to deliver 18% ROE. The intent is to deliver 18% ROE with this level of RWA intensity.

Thank you. Next question is from the line of Jai Mundhra from ICICI Securities. Please go ahead.

Good evening, sir. Question on OPEX, right, so we have given that you know we are committed to 2.0% OPEX to cost and that is excluding Citi expenses and integration. So, if you can tell us what is the number right now if we were to exclude Citi expenses and integration, integration one can deduct, but what is the like-to-like number as of now?

Jai, thanks for the question. I think there are two ways to answer it. We c an deduct Citi expenses and give you the cost to assets ratio, net of Citi expenses. We've always indicated that we will not report Citi numbers separately because it's an integrated balance sheet. When we announced the deal, we said that Citi operates at roughly 200 basis points higher cost to assets than us. They were 5% of the business, so 10 basis points. So, the other way to answer your question is adjusted for Citi against the 2.41% that we have reported in the current quarter, the outlook will be aro und 2.10% would be the target as we would stand.

Sure, understood. That is clear. And secondly on your comment on deposit pace moderating, the pace of deposit cost moderating, of course that is visible in your numbers so far. But I mean just observation that since March, right, our total deposit growth has also been very muted. So, for the last two quarters, maybe you have not, let us say if you were to accelerate the pace of deposit growth, would the current run rate would also sustain? I mean any thoughts there that if you were to accelerate from here onwards, the behavior should also be similar, is that the correct understanding?

Look, I think for our comment is marginal cost of funds have stabilized given our own growth aspirations, our call out remains that there will be an increase in cost of funds/cost of deposits, that pace should slow, the incremental increase to slowdown in the consequent quarters. We stay true to what we think we need to deliver on growth and our comment on cost of funds is in light of the growth we think we would like to deliver.

Thank you. Next question is from the line of Piran Engineer from CLSA India. Please go ahead.

Thanks for taking my questions and congrats on the quart er. Some of them have been answered, but I have a couple remaining. Firstly, on your sharp increase in repo link loans in the last two quarters, that too without much growth in home loans, is it fair to say that you're moving to better quality corporates or is it just more bargaining power in the hands of the corporates now?

Almost all the lending that we do on the SME side is repo, so it's not just the retail side. Even all of the SME, which is around 10% of our portfolio would comprise repo.

But that hasn't increased much in the last two quarters, right? It's actually just flat at 11%. So, whereas your share of repo link loans has gone up from 41 to 46, so I'm presuming its large corporates that are being repriced?

So, large part of the increase is from the SME side, as I just explained, there is some repricing that's happened on the corporate side as well that would explain this increase.

Okay. Fair enough. Secondly, just getting back to a previous question on what explains the increase in loan yield when loan mix has largely been the same, is it fair to say that just some lagged impact of MCLR hikes that were taken 6 months back or have we increased rates across product?

Piran, thanks for the question. I think like I called out in the structural NIM journey, one is portfolio composition which is Retail, SME and Wholesale. But there's another driver under that which is the product mix. Further, there has been a driver which is RIDF reductions as we see them. Lastly, there is a driver on the currency composition of the advanced book, so it's not just one lever where you see constant performance, which is wholesale, retail, SME. But the other 4 levers that I have spoken of have meaningfull y moved in our favor, consequently helping us improve overall portfolio yields. You will get the directional input on slide 12 of our investor presentation. We have given you directionally where each of those levers have moved.

Thanks for that. And lastly, just a clarification, did I hear Amitabh say 28%-29% retail TD growth?

No, Amitabh indicated that on a year -on-year basis, the RTD growth is 15%. That's the numbers that we've reported. So, that's the accurate number that you should be looking at please.

Yes. I just want to confirm that. Thanks a lot and all the best.

Good evening everyone. So, my question is on the branch expansion. We have seen a pickup in branch expansion this quarter. So, how are we looking at that trend? And also given our specific guidance on cost to asset, what sort of branch expansion are we baking in over FY25?

So, as we had mentioned couple of quarters back, we are looking at doing about 500 branches this fiscal and we are on the path to delivering that. So, this is something which is there in the public domain. So , that's what we are headed for in terms of branch expansion and the way we look at branch expansion is to look at white spaces across states and different geographical catchments and see how we can establish both in terms of local intelligence as well as analytics to ensure that these 500 are established . That's how we have moved towards what we have done as 200 odd branches in the first half and we are confident we will do the 500 this year.

Right. So, basically what I want to understand is like the way we have explained the rise in OPEX from the baseline to the current quarter, what are the levers that we have when we look at a decline over FY25, what will bring it down? What components will possibly like drive this reduction?

I think the directional answer to that question would be 1) growth productivity benefits for all of the digital and tech investments that we're making should flow through over a period of time. You would also note that we've been in the process of trans itioning the book from a mix perspective of 47% -48% wholesale, 52% retail. So, now roughly 58% retail, 42% holds at the CBG. Given where we've gotten to, we have now started seeing over the last couple of quarters wholesale growth and retail growth match each other and therefore proportions haven't changed. Wholesale growth comes at a much lower cost to assets ratio. And therefore, as the book now grows across our segments, we should see some optimizations come through. So, we do have a plan on being able t o optimize where we need to get to. I would, however, reiterate what I said to an answer to a question earlier. We would like to continue to invest in the business as we move forward. The opportunity set that we see is large, and if that means continuing t o invest to deliver the right outcomes and other lines of our P&L, we'll continue to do so. The 2.1%, we have indicated around 2.1% including Citi is what we would target on FY25 exit. If we have to review that number, we'll come back to you, but as of now, that number stands.

Right. And I have one more question on the credit card business, the ETB mix of card has declined quite sharply. Like, how do you look at that and any threshold on this that you would like to maintain? I understand tha t the KTB mix was going up and just why this decline, but any threshold on ETB share that you would like to observe?

Yes, thanks for the question. The way I request you to look at that and to contextualize it is to look at partnerships as a whole because there's also in addition to just ETB and NTB in the form of digital partnerships, we have a very amenable mid path which is what we call the KTB, i.e. known to the Bank where we are able to underwrite customers a lot more effectively based o n the wide- ranging set of partnerships we have and the data which those partners are able to call into an underwriting score. So, we use that very effectively and we've been able to grow that book quite well. We have noticed that the data which the partner put together also is quite a good predictor on current behavior. So, that's holding out pretty well as well. Therefore, as we continue to invest in partnerships as a means of growing both to get the numbers and to deliver higher customer value, we will find that the ETB-KTB mix will keep moving. We also keep an eye on that, and we'll keep calibrating that in the quarters going forward. But in a particular quarter, the mix could change. For example, you could have offers running with a particular partner, w hich would then in that quarter increase the mix. So, I'd request you to look at that in the context of three segments, ETB, KTB and NTB rather than the traditional way of just two segments.

Thank you very much and I now hand the conference over to Mr. Puneet Sharma for closing comments.

Thank you, Neerav. Thank you everyone for taking the time to join us on our call this evening. Wishing you and your families a very Happy Diwali and all the best for the upcoming festivities. If an y questions remain unanswered, please do reach out to our IR team or myself and we'll be very happy to pick them up. Good evening.

Thank you very much. On behalf of Axis Bank, that concludes this conference. Thank you for joining us. You may now disconnect your lines. Thank you.